This paper uses disaggregated price data to analyse the extent and the speed of retail price convergence between New Zealand and Australia since 1984. The paper addresses several issues concerning the integration of markets in the two countries. It compares the behaviour of the prices of a set...

We examine electricity market reform in Brazil: from the 1990s till 2004 the largely hydro-powered market cleared using a market mechanism, and in March 2004 reformed to a single buyer structure. We model monthly log price differences using a two-state Markov Switching model, allowing water...

Implied volatilities are frequently used to quote the prices of options. The implied volatility of a European option on a particular asset as a function of strike price and time to maturity is known as the asset's volatility surface. Traders monitor movements in volatility surfaces closely. In...

Toby Daglish and Nimesh Patel discuss the rationale behind banks charging break-fees to recoup their losses as a result of customers prepaying loans. Next they chart the historical levels of these for New Zealand. Lastly they develop a model which allows for fluctuations both in banks' wholesale...

We present a closed form solution for the optimal hedging strategy in discrete time of an option whose underlying security follows the Heston Stochastic Volatility process. Our Monte Carlo simulations indicate that this significantly improves hedging performance at weekly and longer hedging...

It is common practise in industry for traders to use copula models combined with observed market prices to calculate implied correlations for firm defaults. The actual feasibility of this calculation depends on the assumption that there is a one-to-one mapping between values of CDO tranches and...

We explore calibration of single factor no-arbitrage short rate models to yield and volatility information. We note that the calculation of Arrow-Debreu prices for interest rate securities is analogous to solving the Kolmogorov Forward Equation. This insight allows us to implement implicit...